Saturday, February 21, 2009

Is Nationalisation Cultural?

On Friday the market fell to a 6-year low. It did not seem to like the idea of nationalizing the banks. In fact, it had fallen even deeper earlier (down to an 11-year low) when the head of the Senate Banking Committee said that some banks might have to be nationalized for a while. (NPR)

I can understand that Wall Street loathes the mere idea of nationalization , but what about the rest of America?

President Obama on Friday linked the economic concept of "nationalization" to "culture" when he compared the situation in the U.S. to that of Sweden in the 90s (a country that "took over the banks, nationalized them, got rid of the bad assets, resold the banks and, a couple years later, they were going again") :

Obviously, Sweden has a different set of cultures in terms of how the government relates to markets and America's different. And we want to retain a strong sense of that private capital fulfilling the core -- core investment needs of this country. (ABC)

I am not an economist but when many of them, including Nobel prize winner Paul Krugman, say nationalization is the only way out of the current financial crisis, given that the nation's largest banks are now carrying a crushing half a trillion dollars in bad debt (ABC), I tend to listen.

And the argument that our culture won’t stand for nationalization — well, our culture isn’t too friendly towards bank bailouts of any kind. Yet those bailouts are necessary; and even in America they may be more palatable if taxpayers at least get to throw the bums out. Oh, and not a week goes by without the FDIC taking several smaller banks into receivership. Nationalization is actually as American as apple pie. (Paul Krugman, NYTimes)
Personally, I like the pragmatic approach of the British. They may still fail, but it seems to me that they had the merit of being flexible and did not let free-market ideology blind them (they started nationalizing some of their banks as early as last October simply because they had to). I think the U.S. has suffered enough from an all-ideological approach.

Other Europeans, such as the French have always had a very complicated love-hate relationship with nationalization, and the French have been divided over this question along party lines, although it is not a concept as frightening to the French people as to a lot of Americans.

Interestingly the current conservative government in France (whose platform included precisely the privatization of the remains of the public sector) has agreed that nationalization may be necessary - just for a while anyway.

Nationalization is "not a dirty word", French Finance Minister Christine Lagarde told Reuters on the sidelines of an event at Columbia University in New York.

"It's sometimes a tool and a way to restore a situation for a temporary period of time -- and then there's privatization again." (Reuters)


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